China Literature Ltd requested the unusual exemption from the Hong Kong bourse, saying revealing the three executives' stakes "would attract unnecessary attention amongst Tencent's employees and would likely create an unfavorable and political working environment which would significantly distort Tencent's workplace culture and distract them from their business duties within [Tencent] as well as their duties as directors of our

Company."

The online publisher filed for a Hong Kong IPO on Monday. The three executives are its board members and would have to disclose their stakes in Tencent as per the city's listing rules. The waiver request will now be vetted by the listing committee of the Hong Kong stock exchange.

"That's an outrageous waiver request, and I hope that the listing committee will reject it," said David Webb, Hong Kong's leading investor activist and a former director of the Hong Kong stock exchange. "It is the thin end of a nasty wedge if the listing committee allows companies not to disclose directors' shareholdings in their parent company."

Jamie Allen, secretary general of the Asian Corporate Governance Association, said it would set a bad precedent to grant the exception.

Tencent and China Literature did not reply to Reuters requests for comment. A spokesman for Hong Kong Exchanges and Clearing (HKEX) <0388.HK>, which operates the stock exchange, said the firm has a general policy of not commenting on individual companies.

China Literature asked for a waiver so it does not have to reveal the stakes held in Tencent by James Gordon Mitchell, a former Goldman Sachs banker and Tencent's chief strategy officer; Cheng Wu, CEO of Tencent Pictures; and Lin Haifeng, general manager of the merger and acquisitions department at Tencent Science & Technology (Shenzhen) Co.

The three are non-executive directors in China Literature's nine-member board, with Mitchell also acting as chairman.

They hold "an insignificant percentage of share capital" in Tencent, the filing added. But with a market capitalization of nearly $330 billion, even a tiny stake in China's biggest social network and online entertainment firm would make the executives multi-millionaires.

In its 2016 annual report Tencent disclosed the stakes held by Chairman Ma Huateng, also known as Pony Ma, President Lau Chi Ping Martin, or Martin Lau, and four independent non-executive directors. The value of the stakes ranged from $29 billion for Ma to as low as $126,348 for one of the independent directors.

As in most markets, shareholders owning 5 percent or more of any stock must be disclosed to the Hong Kong stock exchange and under listing rules IPO candidates must also reveal the interests and short positions their board directors hold in the issuer itself or "associated corporations."

Publicly listed companies must also disclose the interests and short positions of their CEOs and all directors in shares and debentures in the companies themselves or associated corporations under a separate rule, the Securities and Futures Ordinance (SFO).

That means even if China Literature were granted the waiver, it would still have to reveal the stakes at a later date.

"The listing committee has no powers to waive SFO obligations, so as soon as the company is listed, they would have to file disclosures, which will be available to the public," investor Webb added. "So not including them in the prospectus would only delay disclosure."

(Reporting by Elzio Barreto; Editing by Muralikumar Anantharaman and David Evans)